The current administration has begun to acknowledge several deep-rooted, long-term structural challenges facing the U.S. economy:
1. Reserve Currency Pressure
As the issuer of the world’s reserve currency, the U.S. must run persistent current account deficits to meet global demand for dollars. Over time, this has allowed other countries to accumulate an estimated $62 trillion in U.S. assets—essentially, claims on future American output. With U.S. GDP at $28 trillion, this external liability has become a growing systemic risk.
2. Fiscal Recklessness Since the GFC
This imbalance isn’t solely due to reserve currency obligations or foreign actors exploiting the system (a crude, but not entirely incorrect point Trump raised). The deeper issue lies in America’s own fiscal irresponsibility—particularly since the 2008 financial crisis. The U.S. has embraced a “growth at any cost” model, fueling structural deficits without regard for long-term sustainability or resilience.
3. Industrial Erosion and National Security
Decades of offshoring have hollowed out U.S. industrial capacity. What was once framed as an economic efficiency play is now viewed as a national security liability. If the U.S. needed to rapidly produce something like 10,000 airplanes, it would likely find itself unable to deliver—lacking both the supply chain and skilled manufacturing base to scale.
4. Hyper-Financialization
The U.S. economy has evolved to prioritize financial markets over physical production. Capital allocation is increasingly directed toward financial engineering—stock buybacks, leverage, and speculative growth—rather than toward investment in infrastructure, R&D, or long-term productivity. The result: GDP growth decoupled from real wealth generation.
5. Widening Inequality
These dynamics have produced a deeply unequal economy. Asset owners saw massive gains, while real wages for working- and middle-class Americans stagnated. Economic mobility is increasingly constrained. This has created social fragmentation and political volatility.
6. These Problems Manifested as Trump
Trump’s rise is a symptom of these unresolved issues. His appeal lies not in policy sophistication, but in acknowledging realities that much of the political establishment—especially Democrats—refused to confront. Ignoring these structural challenges is a key reason Democrats lost touch with parts of the electorate.
7. Trump’s Proposed Remedies – ‘Beggar Thy Neighbor’
Trump’s approach attempts to externalize U.S. imbalances:
- Reduce defense burden by pushing NATO allies to increase their military spending.
- Use tariffs to force trading partners to absorb part of America’s trade deficit.
While blunt, these are at least responses to real problems, even if they risk trade wars and global fragmentation.
8. Another Potential Solution – Dollar Devaluation
A more systemic remedy would be a managed devaluation of the dollar, which could:
- Reduce the real burden of dollar-denominated debt.
- Tax foreign claims on the U.S., as seen in BBB proposals to withhold or tax interest earned by non-citizens (e.g., 5% on remittances).
- Boost export competitiveness and incentivize domestic manufacturing.
- Shift purchasing power from capital to labor, helping ease inequality.
9. Risks of Dollar Devaluation
However, this strategy comes with serious geopolitical and economic risks:
- The Plaza Accord of the 1980s forced Japan to revalue the yen, which appreciated by 45% and contributed to three decades of economic stagnation. This experience ensures that China, the EU, and others will resist coordinated currency adjustment.
- Inflationary pressure
While I expect dollar devaluation may happen, but my approach to deal with that is…